Food Business News - May 15, 2018 - 8
©ZFFOTO - STOCK.ADOBE.COM
Licensing agreement will combine three leading global
coffee brands - Starbucks, Nescafe and Nespresso
SEATTLE - Focus and scale are the key
words that define the licensing agreement announced May 7 by Starbucks
Corp., Seattle, and Nestle S.A., Vevey,
Switzerland. The deal allows Starbucks
management to focus on its core business of selling food and beverages in its
stores. Nestle benefits from a well-known
brand it may expand in retail and food
service markets throughout the world.
Terms of the deal involve Nestle paying Starbucks $7.15 billion for a perpetual
global license to market, sell and distribute certain Starbucks coffees and teas at
retail and food service outlets outside of
Starbucks stores around the world. The
agreement does not include Starbucks'
ready-to-drink products, which are subject to other licensing agreements.
Approximately 500 Starbucks
employees will join Nestle as part of the
agreement, but operations will remain
in Seattle, Nestle said. The agreement
is subject to regulatory approval and
expected to close by the end of 2018.
Ulf Mark Schneider, chief executive
of Nestle, said in a conference call following the announcement that his company
will benefit from the boost the licensing
deal will give Nestle in North America,
where its coffee brands are not as strong
as in other international markets.
"And then, of course, there's a lot that
we bring to the table when it comes to the
global expansion," he said. "I think this is
where we bring the global Starbucks brand
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appeal together with our unsurpassed distribution presence in 190-plus countries."
Francois-Xavier Roger, chief financial officer for Nestle, said the business
Nestle is acquiring has annual sales of
approximately $2 billion.
"It strengthens our global leadership in the coffee category, increasing
our total coffee sales by almost 15% to
Number of Starbucks
Source: Starbucks Corp.
Licensing its retail and food service business to
Nestle will allow Starbucks management to
focus on expanding its store base worldwide.
Consumers can expect
to see Starbucks
branded capsules for
Nespresso machines in
the near future.
NESTLE NESPRESSO S.A.
Nestle, Starbucks building a
global coffee powerhouse
17 billion Swiss francs ($17 billion)," he
said. "From a balance sheet perspective,
there are basically no fixed assets being
acquired ... Because we are not transferring fixed assets and we already have our
own manufacturing and distribution
infrastructure in place, there will be
very limited CapEx required from our
side for this business. We will use some
of our existing manufacturing facilities
outside of the U.S., which will enable us
to increase our own capacity utilization."
Mr. Schneider emphasized while
much initial attention to the agreement
has focused on retail, the opportunities
in food service should not be ignored.
"(It) gives us another platform to
grow in food service, which is a channel
that we have a lot of experience in," he
said. "We already have more than $5 billion of sales in Nestle Professional today,
roughly half of which comes from coffee
with our iconic, Nescafe and Nespresso,
brands. There is a strong complementary
tea in adding the Starbucks brand and
particularly, premium roast and ground
capabilities to this existing business.
And it allows us to (be) a complete provider of coffee solutions in out-of-home."
During the past six months Starbucks Corp. has taken steps to streamline and focus its business. Some of those
measures have included the closing of
Teavana outlets, the sale of Tazo Tea and
a stock-keeping rationalization program
to improve efficiencies. Entering into the
agreement with Nestle is another step
toward streamlining and focusing the
business, said Kevin R. Johnson, president and c.e.o. of Starbucks.
"The fact is that we have established
a global retail store footprint and global
awareness of the Starbucks brand, but
the brand amplifier, our Channel Development business, is nascent in all countries outside of North America," he said.
"Therefore, the core strategic rationale
for this agreement can be summarized as
follows: leverage Nestle's reach and scale
to rapidly accelerate growth in Channel
Development globally as a brand amplifier for our retail store business; introduce
Starbucks brands to the Nespresso and
Dolce Gusto system platforms, together, the world's leading at-home coffee
May 15, 2018